Hermès appears to be more resilient to the coronavirus crisis than many of its competitors: sales declined by “only” 7.7 % on a comparable basis in the first quarter, and sales in China are now expected to pick up again.
January counted double
Hermès generated sales of 1.51 billion euros in the first quarter, slightly below the 1.61 billion euros recorded for the same period last year. At constant exchange rates, this represents a 7.7 % decline in sales, but the result is still (slightly) higher than the 1.45 billion euros forecast by analysts and, above all, way better than those of the competition. Some competitors, such as LVMH and Kering, have seen their sales fall by 15 % or more.
Since the reopening of stores in China, sales have quickly picked up again: the manufacturer of the Birkin bag has recorded double-digit growth. The fact that the Chinese are not allowed to travel may boost domestic sales, CEO Axel Dumas believes. After all, the Chinese are usually known to buy cheaper luxury goods in Europe through middlemen.
The relatively strong first-quarter performance is also due, in part, to an exceptional January. According to Reuters, Dumas said that “the Chinese New Year counts almost as a double month“, although this year the holiday fell in the middle of the Covid-19 pandemic. Hermès is one of the most robust luxury brands: due to the great exclusivity of the products, they are almost considered as investments.
Partial resumption of production
However, the main corona impact will be felt in the second quarter, as 75 % of the group’s stores are still closed and almost all production facilities were shut. All 42 French factories are closed, with the exception of a perfume factory that now manufactures hand sanitising gel for health care. Since 14 April, production and logistics activities have been partially restarted.
For the rest of the year, the luxury house states that it will continue to make strategic investments, both in its production capacity and in its distribution network, and to pay dividends. However, this dividend will be reduced to 4.55 euros per share, instead of the 5 euros previously planned.
